I'm sure most of us see nothing unusual in being charged interest on money we borrow from the bank. But what is the view here on interest being charged on the money that you don't borrow?

This email received from my business banking manager at Standard Bank introducing the Unused Facility Fee (UFF) certainly has me pondering the concept.


Dear Valued Customer

A new fee is going to be implemented by the Bank as from 1 July 2014

The unutilised overdraft fee is going to be levied on business accounts that have a history of not utilizing it facilities to capacity.

This will also assist the owner to manage the business cash flows.


What is UFF?
  • UFF is a fee charged by a lender to a borrower for an unused or underutilised credit line.
  • An Unutilized Facility Fee is generally specified as a fixed percentage of the undisbursed loan amount.
  • The lender charges an Unutilized Facility Fee as compensation for keeping a line of credit opened


Reasons for the Unutilized Facility Fee introduction:
  • Access to an overdraft facility is provided up to an agreed limit
  • As a bank, we are obliged to hold capital against the entire overdraft facility, regardless of whether it is used or not
  • Under the new international regulatory framework of Basel III, all banks are now required to raise their regulatory capital base to improve the banking sector’s ability to absorb financial and economic stresses in order to protect all depositors
  • Unlike competitors, Standard Bank have not previously charged a fee, however the new regulatory environment has now necessitated the introduction of this fee


How is UFF Calculated?
  • Fee charged on the unutilised portion of a customer’s overdraft facility
  • Calculated on the daily outstanding balance of the facility
  • Recovered monthly
  • Fee will fluctuate depending on the utilization of the overdraft over the month
  • The fee will be charged at 1.2% of the unutilized portion of the Overdraft in any given day


Fee to be applicable to accounts based on following rule:

If utilisation is less than the maximum stipulated utilisation rate (i.e. 80%), then Charge applicable fee, else
If utilisation is greater or equal to the maximum stipulated utilisation rate (i.e. 80%) then fee = 0%.

Normal interest on overdraft will be levied.


Thoughts, anyone?